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Equitable Estoppel Halts Insurer’s Success In Bad Faith Claim

July 10, 2017

Demonstrating that equitable estoppel can create genuine obstacles for insurers, the court in the Middle District of North Carolina denied a carrier relief to which it would have otherwise been entitled based upon the carrier’s prior conduct.

The plaintiffs Vytas and Lee Anne Bankaitis sued Defendant Allstate Insurance Company in state court for breach of contract, deceptive trade practices, unfair claims settlement practices and bad faith. The plaintiffs alleged, among other things, that after a fire loss Allstate was aware of the breadth of the damages claimed and refused to provide sufficient value in replacement cost of the plaintiffs’ home. The plaintiffs also alleged that Allstate knew it intended to deny the claim for additional damages, failed to tell the plaintiffs, required them to file multiple claims for the same loss and effectively placed their claims beyond the applicable statute of limitations. Allstate removed the action to the U.S. District Court and filed its motion to dismiss contending the plaintiffs’ “causes of action for breach of contract and bad faith were untimely filed and thus subject to dismissal for failure to state a claim.” Bankaitis v. Allstate Ins. Co. Allstate did not move to dismiss the deceptive trade practice claim (where the statute of limitations is four years), and the plaintiffs conceded on Allstate’s motion to dismiss the unfair claim settlement practices claim under N.C.G.S. 58-63-15(11) because such statute does not create a private right of action. The U.S. District Court found that, while The plaintiffs’ claims for breach of contract and bad faith would ordinarily be barred pursuant to the applicable statute of limitations, The plaintiffs established equitable estoppel sufficient to withstand dismissal of their claims at this stage of the litigation.

In June 2011, the plaintiffs purchased an insurance policy from Allstate which covered their home from certain loses, including fire. On January 29, 2012, a fire destroyed the plaintiffs’ home. In October 2012, Allstate advised the plaintiffs that their builder had caused additional damage to the home and further advised it was not making a commitment to cover any such additional damages. Allstate provided a cost for the rebuilding of the plaintiffs’ home that did not include all amounts requested by the plaintiffs, leaving the additional sums to be determined toward the end of the project.

As construction neared conclusion, the plaintiffs requested additional money for completion. Allstate refused. Unable to reach any agreement, the plaintiffs invoked the appraisal process under their policy. While the appraisal process was underway, the plaintiffs learned that Allstate was attempting to have certain damages caused by the contractor excluded from the appraisal. This belief prompted the plaintiffs to request from Allstate the basis for its position relative to the contractor damages. Allstate responded that it had not indicated or stated that the additional damages would not be covered, but instead that they would have to be handled under separate claims, as they were not related to the initial fire loss. A final appraisal award was reached on August 4, 2015. On January 27, 2016, the plaintiffs filed suit. Allstate responded, filing its motion to dismiss on the basis that the plaintiffs’ claims “were not filed within either the applicable statute of limitations or the contractual limitations provision in the plaintiffs’ insurance policy.” While neither party disputed a three-year statute of limitations, there was a dispute as to the date of loss; it was either January 29, 2012, the date of the fire or October 2012, when Allstate informed The plaintiffs of what it believed to be additional damage to their home. The suit was filed more than three years from either date and “[t]hus the claims would ordinarily be time barred.” The plaintiffs argued, however, “that they could not have filed this action before August 4, 2015, the date the appraisal process was completed.”

In the event of a dispute concerning the value of covered losses, the policy at issue required Allstate to make loss payments upon the entry of a final judgment or the filing of an appraisal award. Contrary to The plaintiffs’ argument, the issuance of the appraisal award was not a condition precedent to initiating a lawsuit; the plaintiffs could have filed suit upon the determination that there was a disagreement over the amount of the loss. The plaintiffs cited no North Carolina authority for their position that participation in or completion of an appraisal has any impact upon the applicable statutory or contractual limitations for filing suit. Additionally, the court found no such authority. Due to the expiration of the statutory and contractual limitations in which suit could be filed, the breach of contract and bad faith claims were subject to dismissal unless Allstate, by its conduct, waived or is estopped from relying upon the limitations provisions.

The plaintiffs allege that Allstate was aware in October 2012 that the plaintiffs’ claims included damages caused by the contractor. The plaintiffs contend Allstate concealed its intent to deny coverage for those claims without the submission of a separate claim. The plaintiffs further allege that upon raising their concern with Allstate that excluding the contractor damages from the appraisal was improper, Allstate informed them for the first time, in March 2015, that a separate claim was necessary. This was months beyond the statute of limitations.

“The plaintiffs assert that Allstate’s concealment of its intent to deny coverage absent submission of a separate claim was intended to induce the plaintiffs’ delay ‘immediately invoke[ing] the appraisal process…fil[ing] a separate claim or commenc[ing] suit.’” The plaintiffs’ complaint sufficiently alleged, to the court’s satisfaction, that Allstate was aware of its actions and its intent to deny coverage, that the plaintiffs lacked such knowledge and that they could not have discovered such information. The plaintiffs assert that they relied on Allstate’s concealment to their detriment in that they did not file suit until the expiration of the statute of limitations.

Allstate argues that the plaintiffs failed to set forth misrepresentations made by it that caused the plaintiffs to delay filing suit. The court nevertheless concluded that the plaintiffs alleged facts sufficient to state a plausible claim of equitable estoppel, relying on a holding by the North Carolina Supreme Court that conduct that lulls a party into a false sense of security, thereby delaying an action, supports a claim of equitable estoppel.

Thus, at this pleadings stage Allstate lost the first round. The second round at summary judgment is next up. It is an open question whether discovery in the case will show actual grounds for equitable estoppel or no grounds at all. Only time will tell.

Jim Bryan's litigation practice concentrates on insurance coverage/bad faith, trucking industry defense, commercial disputes, lender liability, premises liability, environmental disputes and fiduciary trust litigation.